Rupee at record low of 90.89: Ajay Bagga explains why weakness persists despite soft dollar

The Indian rupee slipped to a new record low against the US dollar in early deals on Tuesday, extending its recent weakness in the foreign exchange market.

The domestic currency touched an all-time low of 90.89 against the greenback in early trade, weighed down by sustained dollar strength and cautious sentiment among investors.

On Monday, the rupee had already closed at a record low of 90.74 (provisional) against the US dollar. It marked a sharp fall of 25 paise from its previous close, reflecting persistent pressure on the local unit.

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Why the rupee is falling despite a weak dollar index: Ajay Bagga explains

The Indian rupee has continued to weaken even as the dollar index remains relatively soft, raising questions about the factors driving the currency’s fall. Addressing this issue, market expert Ajay Bagga said the pressure on the rupee is largely due to domestic flow-related challenges rather than global dollar strength.

Speaking to Zee Business Managing Editor Anil Singhvi, Bagga said India’s widening trade deficit is one of the key reasons behind the rupee’s underperformance. He noted that exports have declined, partly due to the impact of higher US tariffs, while imports remain elevated.

Bagga pointed out that portfolio flows have also stayed negative. Foreign portfolio investors have been net sellers in recent months, while foreign direct investment has remained weak, especially after foreign investors booked profits in several IPOs. As a result, the rupee has not received adequate support from capital inflows.

He added that, among Asian currencies, the rupee has been one of the weakest performers. This has happened despite relatively strong macro fundamentals, including lower inflation and stable economic growth.

According to Bagga, a significant part of the trade deficit is driven by higher imports of gold and silver. He said the Reserve Bank of India has managed volatility well so far, but persistent negative flows are keeping the currency under pressure.

On what could help stabilise the rupee, Bagga said a US–India trade deal could improve sentiment. He also highlighted the importance of structural reforms to attract long-term foreign capital, especially through higher foreign investment limits in sectors such as insurance and banking.

Bagga said recent policy moves allowing 100 per cent FDI in insurance could be a major long-term positive. Similar reforms in the banking sector, while retaining regulatory control, could also support capital inflows and help the rupee over time.

On levels, Bagga said the 91 mark remains a strong psychological barrier for the rupee against the US dollar. However, he cautioned that if negative flows persist and RBI intervention remains limited, the currency could test those levels before stabilising.